An important common strand is contractualisation of labour, against which even the organised workers were protesting — despite the fact that contract workers are not part of the organised sector. The gathering momentum of discontent also comes during an economic slowdown, and contributes to further erosion in the currently low investor and business confidence. This underlines the need to address labour issues across both the organised and casual sectors of India’s labour market.

An immediate predecessor of this strike was a prolonged stand off at one of India’s largest automobile firms, Maruti Suzuki, which resulted in considerable loss of production and market share for the firm. Over the past five or so years, major firms like Hyundai, MRF and Hero Honda have faced similar strikes, with strikers consistently demanding better wages and working conditions for casual workers, and the official recognition of labour unions. The unrest is also concentrated in the automobile industry, whose labour market structure is characterised by a significant presence of casual workers, which sometimes constitute almost half of the labour force. Casual workers typically earn half as much as their permanent counterparts, and bear the brunt of a cyclical downswing. This has led to demands of pay parity and attempts to form their own unions to secure more bargaining power; firms have resisted such attempts for fear that political backing and interference might make the obstructive nature of existing labour laws even worse.

These strikes have also taken place in a context of extraordinary price increases: consumer prices in India grew on average 11 per cent, 12 per cent and 9 per cent in 2009, 2010 and 2011 respectively. Corresponding food price inflation was even higher, at 13 per cent, 18 per cent and 9 per cent. This reveals the enormous erosion of real incomes. The insecurities of casual labour — the flexible side of an otherwise rigid labour market — figured prominently in the list of demands of the 29 February strike. Requests included the reform of minimum wage laws to adjust for India’s cost of living, an end to inflation, the regularisation of casual workers’ conditions and the provision of social security, the facilitation of quicker union registration, and the introduction of stricter labour laws with more regular enforcement.

The economic impact of these events is considerable. Maruti’s losses reportedly range from Rs 500 to 700 crores (US$100–140 million). And while the February strike was muted, its impact was broad; the banking and financial services sectors were partially affected, as were oil, coal and power sectors, albeit less so.

These developments mark the need for labour market reform. India has one of the most restrictive labour law systems in the world with respect to worker dismissal, a feature that over the past two decades has prompted manufacturing businesses to hire more casual workers. Shrinking organised employment is the consequence of these policies. But in the casual labour market, minimum wages and other protections affirmed by legislation are poorly implemented.

There is a real need to respond to this dissonance — the asymmetry between organised and casual labour needs to be bridged. Just as the restrictive labour laws sheltering organised labour need be more elastic, casual workers need more enforceable protection. This means the restrictive labour legislation that reduces incentives for hiring permanent labour needs to be reformed. The pool of jobs requiring low or semi-skilled workers also needs to be expanded to allow a competitive job market and greater mobility. And supportive safety nets, along with greater enforcement of minimum wage legislation, needs to be instituted.

Labour market reform is essential if firms are to retain their competitiveness, and in some instances simply survive the dynamics of global business. Germany, for example, weathered the 2008 crisis by subsidising shorter working hours, distributing the burden of adjustment across government, firms and workers, despite a relatively inflexible labour market. Likewise, it should be possible for Indian firms, workers and policy makers to devise creative solutions to overcome India’s own specific rigidities.

Research across different Indian states shows that less-restrictive labour legislation is associated with more-effective trade and industry reform. If labour-intensive manufacturing is to be one of the drivers increasing the share of manufacturing in GDP from its current 15–16 per cent to 25 per cent, as the New Manufacturing Policy aims to achieve, this is an important area of reform.

Renu Kohli is a New Delhi-based macroeconomist and a former staff member of the International Monetary Fund and the Reserve Bank of India.